Finding a Franchise Location Not Too Far and Not Too Close

November 6, 2017

When starting to franchise a business, one must consider competitors in the surrounding area. Competition, in general, is not a problem and can act as an advantage when the neighboring competitors cluster together. Experience has demonstrated that when certain retail outlets combine in an area, their strength outweighs the benefit of being alone, i.e., Walgreens and CVS are usually across the street from one another.

This phenomenon is known as ‘friend and foe.’ For many years it has proved useful in many different retail businesses including restaurants and factory outlets. Being with the other relevant businesses in the same area gives each an advantage while being on their own makes others their enemy.

If we consider the example of gas stations, it has been an accepted fact that 75% of business sales on a new site comes from the other established locations within a 2-mile radius. In the case of the lottery business, 75% of sales come from within a 1-mile radius.

The problem is that many franchise businesses have a travel area far more than those mentioned above. By mapping customer details, such as demographics, geographics, psychographics, using franchise mapping, businesses have a more significant opportunity to see where to place a franchise location visually.

GeoMetrix can provide customer data or businesses can also upload their data that can be visually mapped. Once mapped, the next step is to analyze to see what radius is needed to ensure coverage with 60% to 80% of potential customers.

The data and analysis provided through franchise mapping offer practical conclusions about the preferred marketing area (PMA) which involves using these parameters:

High-density area: usually above 100,000 people in a 1-mile radius.

Middle Suburbia: usually 600,000-800,000 population density in a 2 1/2 mile radius.

Outer Metro Areas: usually a population of fewer than 40,000 individuals within 2 miles.

Franchise mapping is beneficial in most cases. There are instances when a new store opened in the clustered area and it resulted in increasing the sales of the other nearby shops. This increase might be due to the advertising and marketing impact of more stores in the area which attracts more customers.